G Mahalingam, Whole Time Member, SEBI has cautioned fund houses to be careful about their advertisements. He was addressing fund officials at an industry event held recently in Mumbai.
Mahalingam said that the responsibility of industry and the regulator has become onerous with growing popularity of mutual funds among retail investors. He said, “If an industry does not grow then the regulator has nothing to do but if the industry is growing very fast, the regulator has to see that the growth is evenly paced and that it is not a bubble.”
He further said, “With increasing awareness about mutual funds, the industry needs to be very careful about advertisements. These advertisements should not give mis-information. We want people to keep investing in mutual funds. They should not be disenchanted and leave the product category.”
Talking about the way forward, he said that the industry should grow in a responsible way. Hence, advertisements should be clear, lucid and realistic. “You cannot paint a picture of returns which is multifold compared to the bank deposits. Though equity can be rewarding over a long term, you should not lure people by highlighting that the product has given 25-30% odd returns. You should set reasonable expectation from the beginning.”
Last year, SEBI has stipulated that ads must give a point-to-point returns chart on a standard investment of Rs.10,000 to help investors understand better. SEBI has also instructed them that a distinction must be made between the performance of regular and direct plans along-with a footnote mentioning that different plans have different expense structures.
In addition, SEBI has allowed celebrity endorsements at industry level to increase awareness about mutual funds.